Re: High tech meets low finance

Melvin et al,

I agree. Finance generally, and payments in particular, I would argue, are
where conditions are best aligned for the (Semantic) Web to enable a killer
app, and mass market adoption. This hasn't happened yet, of course. But the
complex, multi-party interactions in finance (and even payments) suggest to
me that any new "Web" platform technology would follow an exponential
growth curve with a high exponent: in other words, a "flat" part that's
particularly long and slow, but also that grows explosively once it emerges.

The "Internet of Payments" seems to me a better term to use for such a
phenomenon than "Web...". Despite the importance of semantic
interoperability, the early use cases I see are more messaging-centric, and
hence email-like. (This is not to suggest that such a phenomenon would stay
limited to payments. It wouldn't; but traction in payments comes first, I
suspect).

Payments are the high volume, mass market interactions in the financial
world. And yet it's finance - lending - that drives the more significant
value and revenue streams, and hence investment in new models. (Credit
cards have a lending component, so they would be at the intersection of the
two). Change in payments, in particular in the higher volume and value
world of B2B, where semantic interoperability also matters more, is being
driven by a increasingly significant integration of the two. By this, I
mean scenarios where payments become a low-cost channel for delivering a
financing value proposition that also arbitrages across the buyer's and
seller's access to credit.

Blockchain technology can also play a key role here, though I'd note that
it's not *necessary* for semantic interoperability: they're separate
layers. In particular, I hypothesize that a (blockchain-based) global,
interoperable framework for payments that also supports financing scenarios
could have a transformational impact. An Internet of Payments (IoP)
Framework, in other words.

Thinking about this need not be a "blank sheet" exercise. SWIFT, along with
a number of leading global banks, has in fact developed such a structure,
the "Bank Payment Obligation" or BPO, which relies on a complex electronic
document matching platform, the "Trade Services Utility" or TSU. It's true
that the overly-complex BPO has very little adoption so far today. But I
suspect that, with a few key simplifications, it could lead to the
development of just such a framework. BPO could also come to mean a "
*Blockchain* Payment Obligation". The document-matching-based payment
conditionality that the TSU provides could, and probably should, be
gradually supplanted by blockchain implementations: ("smart contracts" is
the term some use; this group's work on crypto-conditions seemed to me as
if it might align reasonably well). It's obviously important to have both
the broad, extensible framework, but also early clarity on one or a few
simple use cases to drive initial adoption.

For anyone interested, I recently drafted this blog post outlining four
elements that I see on the path to a next-gen framework for transforming
global payments and finance
<https://www.linkedin.com/today/post/article/how-bpo-could-catalyze-internet-payments-roger-bass?trk=prof-post>.
(One of those elements being blockchain; another, semantic
interoperability, ie the IoP). Gluttons for punishment can find some more
related posts from me here
<https://www.linkedin.com/today/author/0_3UVdciY9C17l63MmyHf2hE?trk=prof-sm>
.

I'm talking to a few of the leading players about this - happy to discuss
further on this list, or one-on-one, if there's interest.

Roger


On Sun, May 15, 2016 at 3:16 AM, Melvin Carvalho <melvincarvalho@gmail.com>
wrote:

> Nice article in the economist about tech and finance
>
> "TECHNOLOGY ought to have revolutionised finance more than any other
> industry. After all, modern money is mostly an entry on a computer—capable
> of being transmitted instantly and virtually costlessly around the world.
> Stockmarket activity is now dominated by high-frequency traders, who make
> deals faster than they can blink.
>
> The finance sector spends more on technology, as a proportion of its
> revenues, than any other industry. Nevertheless, compared with the world of
> e-commerce, banking still sometimes gives the impression of a Volkswagen
> Beetle instead of a Formula 1 racing car. It took many years of effort to
> get to a world of “T+2”, where securities are settled two days after the
> trade is made, rather than the “T+3” system that preceded it."
>
> Read more ...
>
>
> http://www.economist.com/news/finance-and-economics/21694531-all-money-spent-technology-banking-not-efficient-high-tech-meets-low
>
> I think we need to try to use the web to create more progress, in this
> area.
>